The Markets May 24, 2022

Fixed Annuity Products Lead Annuity Sales

Fixed annuity sales rose 14% in the first quarter, with all fixed products except income annuities recording positive growth.

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Although the start of the year was a rough period for markets, total U.S. annuity sales increased 4% during the first quarter to $63.3 billion, driven by fixed indexed annuity and fixed-rate deferred sales growth, according to LIMRA’s U.S. Individual Annuity Sales Survey.

“FIA and FRD sales benefited from rising interest rates and increased market volatility, as investors sought protected growth options,” says Todd Giesing, assistant vice president, LIMRA annuity research. “LIMRA is forecasting these products to thrive under current market conditions, growing 5% to 10% by year-end.”

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Overall, fixed annuity sales rose 14% in the first quarter to $35.2 billion, LIMRA says. All fixed products except income annuities recorded positive growth.

FIA sales were $16.3 billion, 21% higher than first-quarter 2021 results. LIMRA predicts FIA sales will grow as much as 10% by the end of the year. Fixed-rate deferred annuity sales increased 9% in the first quarter, year-over-year, to $15.9 billion. LIMRA is forecasting as much as 7% growth in 2022.

Immediate income annuity sales were $1.5 billion in the first three months of the year, equal the results from the prior year. Deferred income annuity sales totaled $365 million in the first quarter, down 14% year-over-year.

With interest rates expected to continue to rise throughout 2022, LIMRA says it has forecast as much as 15% growth collectively for immediate and deferred income annuity sales.

Total variable annuity sales fell 6% in the first quarter to $28.1 billion, the survey says. Traditional variable annuity sales were $18.5 billion in the first quarter, down 11% year-over-year. By the end of 2022, LIMRA predicts traditional VA sales to grow by as much as 8%.

Registered index-linked annuity sales grew 5% to $9.6 billion in the first quarter. LIMRA expects an increase in RILA sales as high as 30% by year-end 2022.

First-quarter 2022 annuities industry estimates are based on LIMRA’s quarterly annuity sales survey, which represents 91% of the total market.

As annuity assets continue to grow, earlier this month South Carolina became the 24th U.S. State to adopt enhanced consumer protections that align with the standards finalized in early 2020 by the National Association of Insurance Commissioners in its Suitability in Annuity Transactions Model Regulation.

These standards align with those set out by the Securities and Exchange Commission’s Regulation Best Interest. In practice, this means that the annuity transactions standards require best-interest service without mandating that all advisers to such transactions act in a fiduciary capacity. Supporters of the NAIC approach say that, unlike a “fiduciary-only approach,” the best-interest framework ensures that all savers, particularly financially vulnerable middle-income Americans, can access information about different choices for long-term security throughout retirement.

Data & Research May 24, 2022

Retirement Prospects in the US: ‘Not Great, Not Bad’

Among U.S. workers who have already retired, just 3% describe their situation as ‘living the dream,’ while 37% say they are comfortable.

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Schroders has published its 2022 U.S. Retirement Survey, sharing new data that underscores the concerns many Americans are feeling about their financial prospects in retirement.  

Strikingly, among those who have already retired, just 3% described their situation as “living the dream,” while some 37% said they are comfortable. Another 37% said retirement is “not great, not bad,” and 18% are struggling. This leaves 5% “living the nightmare,” according to the survey.

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Part of the challenge is that a considerable number of retirees (44%) said their expenses in retirement are higher than expected. On the other hand, just 8% said expenses are lower than anticipated.

According to the Schroders analysis, working Americans said on average it will take $1.1 million in savings to retire comfortably, but 56% said they expect to have less than $500,000 saved, including 36% forecasting less than $250,000 in savings. About one-quarter (24%) expect to reach the $1 million mark in retirement savings.

Schroders’ experts say the data in the new report suggests the retirement picture in the U.S. is not improving, and may even be declining. Last year, the percentage of working Americans nearing retirement age (defined here as 60 to 67 years old) who said they have enough money to retire was 26%. This year, that number has declined to just 22%.

In the preretirement group, a third said they would need to win the lottery to attain their dream retirement. A quarter said they would need to sacrifice what they want today to save for later years, while another quarter said they feel they can remain on the same path.

A Bevy of Concerns

According to the survey, the top concerns Americans have about retirement include the following:

  • Inflation lessening the value of assets (65%);
  • Higher than expected health care costs (64%);
  • A major market downturn significantly reducing assets (53%);
  • A health issue draining savings (52%);
  • Taxes reducing retirement savings (49%); and
  • Not being able to afford the lifestyle they desire (49%).

In large part due to these concerns, a substantial 69% of working Americans plan to work in retirement. They will do so primarily to help cover basic living expenses (56%), to stay busy (51%) and to keep active and stay in good health (49%), the survey found.

Joel Schiffman, Schroders’ head of intermediary distribution for North America, says these statistics show workers and retirees are facing “seriously challenging times,” and the situation seems to be taking a toll on people’s comfort and confidence.

“This year, inflation is the number one concern Americans have about their retirement, and next year, it may be something else,” he points out. “Challenges will come, but they can’t derail our focus on saving and preparing for our retirement.”

Proper Planning Boosts Confidence and Outcomes

According to the survey, fewer than one in four respondents (23%) reported having a written retirement plan to guide their decisions, while 40% have done some planning but don’t have a formal plan. This leaves 37% not having done any planning. 

The data shows 76% of those without a current plan in place find the idea of planning overwhelming, and 56% believe it doesn’t make sense because life is so uncertain. However, among those who have done retirement planning, a large majority (91%) said their plan has been useful to them, with 33% saying it has been “critical” to putting them on a better path for retirement. Only 9% reported that they don’t pay attention to their current plan.

“Given the relatively small percentage of Americans who have taken the time to create a specific plan for generating enough assets for retirement, it’s not surprising to see that many believe a dream retirement is out of reach,” Schiffman says. “As an industry, we need to drive the benefits of planning, of investor education, of starting sooner to save in defined contribution plans and IRAs and investing for growth. Investors have to understand how the money they save now will drive income in retirement. This is especially important during times of great volatility like today that can shake anyone’s confidence and compel investors to leave the market. The good news is, it’s never too late to embark on the planning process and improve your retirement readiness.”

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